Foreign Funds Net Buyers of Local Stocks - Is This A Signal?

When I read the news today (Nov. 3, 2011) that foreign funds were net buyers of local stocks in October, hence helping FTSE Bursa Malaysia KLCI (FBM-KLCI) to record its biggest monthly gain in more than two years, two thoughts immediately flashed through my mind:-

1.      It brought me back to my sharing in one of my previous articles about the “May Factor” – a theory that some economic analysts expound as one of the characteristics of market play with regard to fund managers. The analysts say global fund managers take their long annual leave starting May, and the leave period normally ends around August. Thus, their play in the market may be lower during this span. From statistics in the past 20 years, benchmark indexes in the second and third quarters of a year have had seen more incidents of lower performance when compared to the 4^th quarter spanning into the 1^st quarter of the following year. In the fourth quarter, most global fund managers are back to active play. It is time for them to show results before the particular year ends and before appraisal of their performance by their institutions in the first quarter of the following year.

So, can we link the recent net buying by foreign funds in Malaysia with the above theory? As an avid layman observer and follower of news regarding market trends, I am inclined not to rule out the possibility.

2.       All sectors of Malaysians expect the next general elections to take place by March of 2012. All political parties are already gearing preparedness for it, with the ruling Barisan Nasional alliance and the opposing Pakatan Rakyat alliance now intensely deliberating within their component parties on seat allocations for contesting. The recent unveiling of the 2012 Expenditure Budget by the ruling government is deemed by many as an “election budget”, with a long list of goodies and hand-outs as grants to the “rakyat”.

Market pundits expect the local stock market to be pepped up before the coming general elections, just like the past elections.

So, can we also link the recent net buying by foreign funds with the expectations of the general elections? Again, I am inclined not to rule out the possibility.

The Business Times, in its Nov. 3, 2011 issue, reported that “so far in November, foreign funds were net buyers of Malaysia stocks, with a net purchase of RM50 million.” But it also said analysts were unsure whether the foreign funds’ buying spree would slow down after this as it would depend on how the global market performs now.

Stocks were traded at year-low levels over the previous few months, therefore perhaps the foreign funds have gone in now to grab good stocks at lower prices. And perhaps, foreign funds anticipate a further uptrend in the local market in the next few months.  What would you personally feel?

Well…….just keep your eyes open and be alert for any more “signals” that may come along the way in November.